International Financial Law Prof Blog

Editor: William Byrnes
Texas A&M University
School of Law

Tuesday, November 21, 2017

What are the implications for partnerships and partnership taxation under the Republican proposals for tax reform?

Charles Lincoln, Esq. (LL.M. International Tax) authors this article analyzing from an international tax law perspective, what might be the effects of the new proposed partnership rules in the US? Charles Lincoln may be contacted at charlieealincolniv@yahoo.com.

Partnerships are a complex combination of sole proprietorship rules, corporate rules, and financial accounting rules—the tax consequences are outlined primarily in Subchapter K of Charles-lincolnthe US Internal Revenue Code.[1] Partnerships often involve individuals and individuals with corporations acting as partners engaging in business. However, when comparing the US approach to partnerships, there can be differences—especially in the concept of opaque and flow entity through taxation. Opaque is when the profits are taxed at the corporate entity level and flow through is when the profits are taxed at the individual level.

In the United States, there is an option to “check the box” whereby one can qualify for flow through status—and this has been a rule since the 1990s. In other countries, there can be different approaches and modes of analysis to determine whether an entity is flow through or opaque. It is important to consider how the US system as it stands currently relates to other countries—and how the proposed changes could alter these inter-national relations.

Partnership Loans in Action:

Practically speaking, there can be vast differences of tax consequences between the opaque approach and the flow through approach. When dealing with a loan from a partner to the partnership in the flow through approach, the loan is really a loan to the partner—thus the tax administrations disregard it at the partner level. Interest paid on that loan is really a distribution of the partnership income to the partner. This can lead to some sincerely tricky situations of whether the loan is an equity injection or not and whether the “interest” paid is really a dividend received. The divergence is hard to tell sometimes.

On the other hand, when dealing with the flow through approach, the partner giving a loan to the partnership could be treated as a loan from a third party to the partnership. In that case, the interest is income to the partner, the interest deduction is given to the partnership [i.e. passed through the appropriate partner(s)], and the question remains as with the opaque approach whether this is really “interest.”

One behavioral consideration in this relatively concrete example of the loan from a partner to the partnership is what the consequences are if the corporate income tax rates fall and what happens with large partnerships—such as accounting firms or law firms. If there are lower corporate income tax rates, then how are the dividends treated, and how are the profits reinvested.

Practical and Policy Considerations:

When tax rates—such as the cascading tax rates proposed in both the House and Senate tax proposals—come into existence, a prudent partnership would have to reorganize itself. In such a reorganization, the partnership would have to decide whether the loan is treated as a distribution of dividends or interest—in the opaque scenario—and whether the loan is treated as income straight to the partner or whether the interest may be deducted when paid from the partnership to the partner—in the flow through example.

As a matter of policy, changes in the corporate income tax, could lead to changes in the personal income tax—assuming a lobbying effort goes into place to follow through with lowering the individual rates. This is because if corporate taxes are changed, then the partner may not want to take out money from the partnership—because her income bracket could be at a higher rate than the corporate rate. Thus, there is an ebb and flow with these scenarios.

The Tax Reform Proposals Affecting Partnerships:

In the Senate Chairman’s Markup of the Tax Cut and Job Act proposal,[2] there are rules regarding hybrid entities that would eliminate deductions for certain non-qualified party related amounts paid or accrued to hybrid entitles or in hybrid transactions. This is probably similar to the OECD suggestions in BEPS Action 2.[3] This is likely going to be a problem for foreign companies financing into the United States. The House Ways & Means Proposal has not spoken on this yet.[4]

Per interest expense limitations, the House has suggested that 30% of adjusted taxable income—in other words the EBITA (earnings before interest, taxes, and amortization) or regarding worldwide groups 110% of the allocation of net thread party interest expenses to the US corruption allocated on EBITA would be allowed for interest expense limitations.[5]

Regarding interest expense limitations, the Senate suggested that the lesser of either 30% of the adjusted taxable income or the limitation based on the amount of debt that the US would hold if the US debt-to equity ratio were propionate to worldwide debt-to-equity ratio limitations. This seems to have roots in BEPS Action 4—especially for the debt-to-equity ratio limitation proposals.[6]

Finally, considering controlled foreign corporation rules, most existing CFC rules in Subpart F of the IRC will be maintained with both the House and Senate proposals. However, there is another added layer of complexity.

The House suggests that a new CFC rule should allow for 50% of the aggregate profits of all CFCs, above a routine return on tangible assets, subject to a taxable income inclusion. It also includes a foreign tax credit allowed for 80% of foreign taxes actually paid by CFCs. The result of this is that US residual tax would lead to an effective tax rate on foreign earnings of CFCS would be too low.

This “residual” tax would lead to some more complexity. If you have a double Irish sandwich[7] at a low tax rate—such as 5.5%--you may have to pay a residual tax. The question is how sustainable this new system would be given its complexity, especially when adding another complexity considering what would tax consequences would occur when you bring IP home under IRC §367. Jokingly such a level of complexity, could ultimately lead one to favor formulary apportionment.

On the Senate side of the CFC proposal, the Senate suggest that 100% of the aggregate profits of all CFCs, above a routine return on tangible assets, would be subject to a taxable income inclusion and foreign tax credits would be allowed for 80% of foreign taxes “actually” paid by the CFC. There is also a provision for a special income tax rate of 10% applied to the taxable income inclusion.

How is this Going to Affect Business?

The rates themselves are highly variable and subject to change. But, there likely will be tax rate changes—at a minimum if the tax reform goes through. When these changes occur, the most immediate change will likely be a restructuring of partnerships determining whether income should be allocated to the partners or remain in the partnership. This depends on whether the income bracket for the partners is higher or lower than the partnership.

Comparing the US Approach to Other Countries’ Approaches in the World:

So far, it’s important to note that partnerships from a business organizational stand point are organized under the commercial code of the specific state in the United States—this is often akin or identical to the Uniform Commercial Code’s format and guided by case law. But there is no federal commercial code. The confluence with tax law comes in at the federal level. So, the partnership is organized under the laws of a specific state—which do vary state to state—and then have federal tax implications when qualifying for pass through taxation.

This approach is different in different countries. For example, Canada has a similar system to the US where there is provincial rules governing partnership formation; Sweden must register with the federal level of government; France allows partnerships to be flow through if the organization fits within the commercial law list of allowed partnerships; in the UK and Australia, partnerships are governed by common law; in the Netherlands the partnership is allowed if inverted under corporate rules—so sort of a side step approach; in Germany the partnership can be a flow through entity only under commercial law[8]; and in Japan the system technically allows for partnerships, but they are hardly present.

Basic Structure Comparisons:

Per the basic structure of partnerships, most countries have some different domestic rules for determining opaqueness and flow through entities. In The Netherlands characterizes income to be determined at the individual level. Each partner can elect different schedules. The UK system has a scheduler system applied at the partnership level. Each partner pays a share, but asset sales are deemed to be made at the individual level.

Comparatively, in the US, the rules in Subchapter K are complex. Elections made at the partnership level. Capital gains and losses are at the individual level. The basis adjustments to the partnership shares are at the individual level as well.[9] The rules allow for the use of capital accounts to reflect economic reality. There is no negative basis allowed. Similarly, Canada is similar to the US, but has simpler rules. Canada applies GAAR instead of the complex US rules when doing a “special allocation.” Moreover, Canada allows for a negative basis.

Sweden is similar to the US but has strict loss rules. It limits the use of losses to income of the partnership. Sweden also employs a scheduler system for business income. Arguably this is a simpler approach.

In Australia, the character of the income is determined at the partnership level with flow through taxation to the individuals. However, gains and losses are determined at the partner level.

Returning to Germany—with the highest level of partnerships of any country other than the United States—all elections, deductions, etc. are determined at the partnership level. There are no special allocations and the partnership agreements control the allocations. Partners losses cannot exceed a partner’s net equity.

In France, all elections are done at the partnership level. There are no special allocations allowed and the partnership agreement controls. There is no annual basis adjustment to shares allowed in the commercial code.

Liabilities – Tax Costs and Loss Limits:

Regarding liability, (i.e. tax costs of the partnership interest) and the loss limitations, the question to ask is what happens at the entity level (the Partnership) with liabilities? And, then how does this treatment impact two things: (1) the Basis in the partnership shares held by the partners (can I invest $10 and get $100 in return through losses); and, (2) What further impact does this have on the ability of the partners to take losses?

As a unique side note, Donald Trump made a lot of money in losses in real estate—whereby he took advantage of the rules allowing for losses allowed only to liability holders.

In the US, partnerships are reflected in the partner’s basis. General partners—not the limited partners—are labile, because they are at risk up to their investment in the partnership. However, there is a special rule for non-recourse debt (in other words, debt not backed by collar) whereby losses are allowed only to liability holders.

In the Netherlands—similarly to the US—partnership debt is considered the debt of the partner. However, there are not extremely detailed and complex rules at the US has.

In the UK, one follows the partnership agreement. Losses flow through the limited partner’s losses limited to the limited partner’s investment. But there can’t exist simultaneously some partners with profit and some partners with losses. Interestingly, there is no basis analysis—meaning the partnership basis is irrelevant to the partner’s basis.

Australia follows the partnership agreement—and like the UK cannot have some partners with profit and some partners with losses at the same time. Diverging from the UK, because of hybrids Australia has introduced new rules to adjust basis by risk and limit losses. 

Canada’s partnership liability does not impact cost basis of a partner in the partnership. Limited partner losses are limited to basis in the general partner—who can take losses in excess of basis. This scenario with the general partner causes negative basis. Thus, at liquidation the general partner will have a larger gain in the end.

France has no limitation on losses from pass through entities—from the partnership to the partner. Sometimes scheduler limitations exist where R/E losses can not exceed R/E gains. Moreover, losses at the partnership level only considered at liquidations.

Finally, Germany—with its high level of partnerships—does not permit for partnership liability to adjust cost basis of the partner in the partnership. Furthermore, liability does impact determination of the limited partner’s equity and losses taken.

Japan has been missing from this discussion of partnership liability and structure before, because although Japan does have provisions for partnerships, they are virtually not existent. Historically, and from a policy perspective, Sweden had a history of tax shelter wars where much fraud occurred—causing Sweden to get rid of these rules.

Conclusion:

In the United States, we have a complex set of partnership rules emanating from Subchapter K of the Internal Revenue Code.

The new tax proposal could change how deductions for partnership are made, interest expense limitations with debt-to-equity ratios, and how new CFC rules may affect foreign earnings.

However, even once these changes occur, it is important to note how they will interact with other systems in the world.

Political and Policy Denouement:

Looking to the future, it seems that events such as the Panama Papers, Lux Leaks, and now the Paradise Papers can lead to political motivation from NGOs in other countries. If one picks up the tabloids in other countries—such as the New York Post’s analogous publication in Australia—one will see the news of the latest movie star and right next to it how a major corporation is avoiding taxes.

To a US audience, this can seem foreign, because our major news sources, much less tabloids, do not often deal with these issues. But they can lead to political pressures in other countries—especially Europe that far outnumbers the US in the OECD. Then these political pressures can lead to domestic policies that then arise in the European Union’s policies—such as the EU state aid investigation cases affecting many US corporations operating—and then to the OECD level.

Indeed, what can be a better political strategy than raising taxes on corporations—who don’t vote in your country—to raise taxes and re-allocate spending within the specific country.

When the changes percolate to the OECD level, then the OECD can make monumental changes, such as the BEPS project that affect countries internationally.

So, several years later, such changes at the OECD level become parts of US tax reform domestically—as seen with the debt-to-equity ratios, etc. This often originates with major news items, such as Lux Leaks or the Panama Papers—more closely scrutinized by foreign audiences. Thus, it is important to look at the leaks, where the political pressure goes from those leaks, and then how that pressure can percolate up to the OECD level and ultimately influence US domestic rules and Senate Finance Committee Proposals. It’s all connected.

 

[1] § 42:2.Comparison of Subchapter S and Subchapter K, 13 Tex. Prac., Texas Methods of Practice § 42:2 (3d ed.)

[2] https://www.finance.senate.gov/chairmans-news/hatch-releases-modifications-to-senate-tax-plan

[3] OECD/G20 Base Erosion and Profit Shifting Project Limiting Base Erosion Involving Interest Deductions and Other Financial Payments: Action 2: 2015 Final Report (OECD, 2015) http://www.oecd.org/ctp/neutralising-the-effects-of-hybrid-mismatch-arrangements-action-2-2015-final-report-9789264241138-en.htm

[4] Tax Cuts and Jobs Act, H.R. 1 (115th Cong. 1st Sess. 2017).

[5] (H.R. 1) http://src.bna.com/t9z

[6] OECD/G20 Base Erosion and Profit Shifting Project Limiting Base Erosion Involving Interest Deductions and Other Financial Payments: Action 4: 2015 Final Report (OECD, 2015) http://www.oecd.org/tax/beps/limiting-base-erosion-involving-interest-deductions-and-other-financial-payments-action-4-2016-update-9789264268333-en.htm

[7] An example of how this Double Irish Sandwich operates is as follows: “S1 transfers its headquarters to Bermuda, which has no income tax, thus becoming a Bermuda resident. Because of their different tax laws, the United States views the subsidiary as Irish but Ireland views the subsidiary as nonresident. S1 then licenses the IP to a wholly owned Irish subsidiary, "S2," which is not recognized as a corporation by the United States but is recognized by Ireland. The United States allows certain entities to elect to be classified as a corporation, partnership, or disregarded entity by "checking the box" on IRS Form 8832. Partnerships and disregarded entities are not recognized for U.S. tax purposes, and their assets and income are instead attributed to their parent corporation. S2 collects the income from the IP in Ireland, where it experiences a low tax rate, and is able to deduct the royalties it pays to S1 under Irish tax laws. This transaction is not taxed by the United States, as under U.S. law it is viewed as a transfer within a single Irish corporation. Thus, the royalties are untaxed but are deductible, and the IP income is taxed at a low rate. U.S. taxes are avoided.”

ARTICLE: TECHNOLOGICAL INNOVATION, INTERNATIONAL COMPETITION, AND THE CHALLENGES OF INTERNATIONAL INCOME TAXATION, 113 Colum. L. Rev. 347, 399

[8] Incidentally, Germany has the highest level of flow through entities out of any country in the world after the US, because 1930s National Socialist policy promoted that Germans to be “responsible” for their own activities and not hide behind a corporate shield—a good Nazi formed a partnership:

“"It took the Reichsfinanzhof, then the supreme German court for tax law, another eleven years to establish, in 1933, that GmbH & Co. KGs were to be taxed like ordinary partnerships, i.e. transparently, and not like corporations. However, the GmbH & Co. KG was truly kick-started, inadvertently, only by Nazi economic policy. According to Nazi ideology, a good German businessman should be personally liable. Limited liability was regarded as cowardly and immoral. Therefore, the Nazi regime wanted to encourage the transformation of closely held corporations, in particular GmbHs, into general partnerships. [emphasis added by author] In order to implement this policy, corporations were subjected to unrelieved and prohibitive corporate income taxation. At the same time, corporations were given the opportunity to convert into partnerships without negative tax consequences. " Erik Röder, Combining Limited Liability and Transparent Taxation: Lessons from the Convergent Evolution of GmbH & Co. KG,S Corporation, LLC and Co., Working Paper Max Planck Institute (2017).

[9] However, this is not the whole story. “If a partnership has a substantial built-in loss, the § 743(b) adjustments are mandatory. Id. § 743(a), (d). The total § 743 adjustment is the difference between the transferee partner's basis in his partnership interest and his share of the adjusted basis of the partnership property.” Jeffrey M. Colon, The Great Etf Tax Swindle: The Taxation of in-Kind Redemptions, 122 Penn St. L. Rev. 1, 68 (2017).

November 21, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, November 16, 2017

International Tax Reform? Why Expatriate When Wealthy Americans Can Move to Virgin Islands and Not Pay Federal Capital Gains Tax?

Page 97 of the Senate Finance Committee Modified Mark published around midnight last night: Modification to source rules involving possessions

Description of Proposal
The proposal modifies the sourcing rule in section 937(b)(2) by modifying the U.S. income limitation to exclude only U.S. source (or effectively connected) income attributable to a U.S. office or fixed place of business. The proposal also modifies section 865(j)(3) by providing that capital gains income earned by a U.S. Virgin Islands resident shall be deemed to constitute U.S. Virgin Islands source income regardless of the tax rate imposed by the U.S. Virgin Islands government.

The U.S. Virgin Islands has an income tax system that “mirrors” the U.S. Code. The U.S. Virgin Islands may also impose certain local income taxes in addition to taxes imposed by the mirror Code. The Code provides rules for coordination of United States and U.S. Virgin Islands taxation. It permits the U.S. Virgin Islands to reduce or remit tax otherwise imposed by the mirror code if the tax is attributable to U.S. Virgin Islands source income or income effectively connected to the conduct of a trade or business in U.S. Virgin Islands. The U.S. Virgin Islands has exercised that authority to provide development incentives for certain types of businesses operating within its borders. Under such initiatives, companies can receive a 90 percent reduction in their tax liability on certain income.

Under the mirror Code, U.S. Virgin Islands citizens and residents are taxable on their worldwide income. A foreign tax credit is allowed for income taxes paid to the United States, foreign countries, and other possessions of the United States. In general, a bona fide resident of the U.S. Virgin Islands is required to file and pay tax only to the possession; compliance with that obligation satisfies any Federal income tax filing obligation. ...

In the case of an individual who is a U.S. citizen or alien residing in the United States or the U.S. Virgin Islands, only one tax is computed under the Code. If an individual is a bona fide resident of U.S. Virgin Islands for the entire taxable year, such tax is payable to the U.S. Virgin Islands and no U.S. tax is imposed. Otherwise, a citizen or resident of the United States who has income from sources within the U.S. Virgin Islands must determine the portion of income attributable to the U.S. Virgin Islands and the related tax payable to the U.S. Virgin Islands. The remaining portion is payable to the United States.

Concerns that U.S. citizens not resident in the U.S. Virgin Islands were improperly claiming residence in the U.S. Virgin Islands or forming entities in the U.S. Virgin Islands in order to recharacterize income earned in the United States as sourced in the U.S. Virgin Islands and claim the 90 percent economic development credit led to legislative changes in 2004. These changes provided a definition of bona fide residence in a possession and rules to determine source of income from possessions. They also impose a requirement that individuals report any change in residency status with respect to a possession during a taxable year.

 

November 16, 2017 in Tax Compliance | Permalink | Comments (0)

Tuesday, November 14, 2017

Fighting Tax Crime: The Ten Global Principles

The OECD's Task Force on Tax Crimes and Other Crimes (TFTC) has a mandate to improve co-operation between tax and law enforcement agencies, including anti-corruption and anti- Fighting Tax Crimes bookmoney laundering authorities, to counter financial crimes more effectively. The TFTC's work is carried out in connection with the OECD's Oslo Dialogue, a whole of government approach to tackling tax crimes and other financial crimes. 

Fighting Tax Crime: The Ten Global Principles sets out the 10 essential principles for effectively fighting tax crimes. It covers the legal, institutional, administrative, and operational aspects necessary for putting in place an efficient system for fighting tax crimes and other financial crimes. It draws on the insights and experience of jurisdictions around the world.

The purpose is to allow jurisdictions to benchmark their legal and operational framework, and identify areas where improvements can be made. Future work in this area will include adding country specific details, covering a wide range of countries.

November 14, 2017 in AML, Tax Compliance | Permalink | Comments (0)

Monday, November 13, 2017

Is Senate Finance Committee Reduction in Retirement Savings of Public Education and Government Employees an Attack or Leveling the Playing Field?

I have been focused this past week on understanding the impact and implementation of the House Ways & Means and Senate Finance Committee proposals on U.S. businesses foreign source income.  Two proposals that interest me are the ones aimed at transfer pricing, being (1) the minimum deemed distribution of a foreign subsidiary's earnings above a statutorily defined return on tangible capital and (2) the 20% excise tax on payment to foreign related corporations.  

I recognize that the 2017 Tax Reform discussion originally was partly about whether the Code should be used for incentives in favor of an activity or Senate Financetaxpayer.  But the dueling Chamber proposals are now out and tax reform based on equity and on eliminating tax-incentives died on arrival.  It the same old 'every interest' vying for a portion of the pie.  That's the democratic, political "Gulchi Gulch" process.  Given that I work at a public academic institution, I have 'a dog in this fight' described below. Hope that the government relations staff of NTEU, of state universities, and of other government employee stakeholder groups raise their voices like the Seraphim to the Republican members of the Finance Committee that are willing to listen.

So what's so alarmed me to divert my attention to the retirement provisions of the Senate Chair's mark?  Did not the President state that retirement would be left alone (see his tweet here)?   Senate wasn't listening to him as usual. 

The Senate Finance Committee Chair slipped in (at page 178) an explosive measure for government employees that also impacts public academic institutions.  The Senate Finance Committee Tax Reform Chair's Mark under the current status (November 9, 2017) will limit public employees to one aggregate amount of $18,500 for retirement plans 403(B) and 457 as of January 1, 2018.  Government, including public institution, employees needs to become immediately aware that this provision will critically reduce their ability to contribute to their employer retirement plan(s) by $18,500 (or $24,500 for employees 50 years and older) as of January 1, 2018.   Thus, while there is still time to make December 1st contribution changes to preserve the last year of the additional $18,000 (or $24,000 if at least 50 years of age), these employees need to arrange with their payroll officers to contribute before December 31st any difference between what is allowed in 2017 and what has actually been contributed.  As of January 1, 2018, the ability to contribute is gone forever.  

Curiously, I have not found an informative article about the impact of this provision, much less calling for employees to contact their Senator.  Silence from the public university crowd that is usually quite loud although this provision will damage their ability to attract researchers, faculty, and staff from the higher compensation opportunities of private educational institutions and for-profit industry.   

Instead of the beneficial retirement system, government agencies and public institutions need to find more revenue to pay competitive salaries and employee benefits to replace the loss of the retirement benefits (doubtful) Senate Finance will take away.  Lacking better salaries, government agencies and public institutions will experience disproportionate employee turnover of the best performing management coupled with a declining ability to attract highly accomplished professionals and researchers to replace the pool. 

Perhaps this provision is a Republican payback to government agencies like the IRS because Republicans think that the current government management pool is biased against Republican groups or lacks service for taxpayers?  But taking out the best performing managers will exasperate the challenges, not remediate them.  If this is a 'payback', then it is also 'cutting of one's nose'.   Perhaps the provision is but a Machiavellian move in a contest for talent between a state university and its private counterpart? 

Maybe the silence from the government and public institutions employees is 'heads in the sand', and perhaps 'those in the know' think this provision will not survive because JCT scored it as only worth $100 million a year at least until 2021 (so why waste the political capital).  Apportioned amongst all government employees in the US (being federal and state), state public academic institutions I suspect are less than 10 percent of this score, thus about $10 million a year for offset (inconsequential basically).  A carve-out from this provision for public educational institutions would address the harmful issue and can be negotiated in response to the proposed loss of the current carve-out for deferrals allowed for section 403(b) plan for at least 15 years of service to an educational organization, hospital, home health service agency, health and welfare service agency, and church.  Albeit seems to me that we want to also incentivize doctors, nurses, social workers, and clergy to stay long-term in their public positions instead of moving to lucrative private industry.  

M. Retirement Savings (see page 177 - 178 of Senate Finance Committee Chairman Markup attached)  Download 11.9.17 Chairman's Mark

1. Conformity of contribution limits for employer-sponsored retirement plans

Present Law: In the case of a governmental section 457(b) plan, all contributions are subject to a single limit, generally for 2017, the lesser of (1) $18,000 plus an additional $6,000 catch-up contribution limit for employees at least age 50 and (2) the employee’s compensation. This limit is separate from the limit on elective deferrals to section 401(k) and section 403(b) plans. Thus, for example, if an employee participates in both a section 403(b) plan and a governmental section 457(b) plan of the same employer, the employee may contribute up to $18,000 (plus $6,000 catch-up contributions if at least age 50) to the section 403(b) plan and up to $18,000 (plus $6,000 catch-up contributions if at least age 50) to the section 457(b) plan.

Finance Committee Chair Proposal: The proposal applies a single aggregate limit to contributions for an employee in a governmental section 457(b) plan and elective deferrals for the same employee under a section 401(k) plan or a 403(b) plan of the same employer. Thus, the limit for governmental section 457(b) plans is coordinated with the limit for section 401(k) and 403(b) plans in the same manner as the limits are coordinated under present law for elective deferrals to section 401(k) and section 403(b) plans.
 
Hatch Amendment #2 to Chairman’s mark of “Tax Cuts and Jobs Act.”
Short Title: An amendment to the catch up contribution rules for section 401(k), 403(b) and 457)(b) retirement savings plans.
Description of Amendment: This amendment would require all catch up contributions to section 401(k), 403(b) and 457(b) retirement savings plans to be Roth only, and increase the $6,000 catch up contribution annual limit applicable to such plans to $9,000.

November 13, 2017 in Tax Compliance | Permalink | Comments (0)

OECD Publishes Effective Inter-Agency Co-Operation in Fighting Tax Crimes and Other Financial Crimes - Third Edition

Financial crimes are increasingly sophisticated, with criminals accumulating significant sums through offences such as drug trafficking, fraud, extortion, corruption and tax evasion. Tax Crimes bookDifferent government agencies may be involved in detecting, investigating and prosecuting these offences and recovering the proceeds of crime, or may hold information essential to these activities. This report describes the current position in 51 countries as to the law and practice for domestic inter-agency co-operation in fighting tax crimes and other financial crimes including, for the first time, co-operation with authorities responsible for the investigation and prosecution of corruption. It identifies successful practices based on countries’ experiences of inter-agency co-operation in practice and makes recommendations for how co-operation may be improved.

Download Effective-inter-agency-co-operation-in-fighting-tax-crimes-and-other-financial-crimes-third-edition

The report includes chapters on:

  • organisational models for agencies fighting financial crime;
  • legal gateways to enable the sharing of information between agencies;
  • models for enhanced co-operation, such as joint investigation teams and multi-agency intelligence centres; and
  • country-specific sections, containing information on the position in each of the 51 countries covered by the report.

November 13, 2017 in AML, Tax Compliance | Permalink | Comments (0)

Monday, November 6, 2017

Early Christmas Gift Announcement: US Overseas Taxpayers Subject to Three New IRS Scrutiny Campaigns & Audits Next Year

Since the enactment of FATCA, US persons (citizens and green card holders) overseas have, via lobbying efforts, requested relief from the additional tax compliance burdens placed Christmas-eve-1846481_960_720 upon them that appear to be increasing their costs of living overseas (which is generally more expensive than living in the USA anyway).  Their arguments fall into the following three: (1) generally, they file foreign tax returns and pay local tax preparation services but must also pay an additional $2,000- $3,000 for a US tax preparation service specialized in foreign residence; (2) generally the foreign income exclusion and foreign tax credit wash out the U.S. tax burden but for anomalies in definitions between retirement plans that cause undue burden on foreign residents US persons; and (3) US persons must pay more for financial services because they have become the pariah of the financial world. 

On November 3, 2017, the IRS responded.  But the response is not exactly what the foreign resident U.S. persons had in mind.  The IRS will subject these foreign resident U.S. persons to three new compliance campaigns to root out the noncompliant, employing audits and other investigatory strategies.  The IRS has delivered an early Christmas announcement for US tax advisers of the coming great year!  Advising on the new tax code section enacted pursuant to "tax reform simplification" combined with advising the foreign resident US taxpayers that will potentially be caught up in the three campaigns' scrutiny will deliver strong 2018 fee earning results.  

  • Foreign Earned Income Exclusion Campaign

Practice Area: Withholding & International Individual Compliance

Lead ExecutiveJohn Cardone

Individuals who meet certain requirements may qualify for the foreign earned income exclusion and/or the foreign housing exclusion or deduction. This campaign addresses taxpayers who have claimed these benefits but do not meet the requirements. The Internal Revenue Service will address noncompliance through a variety of treatment streams, including examination.

  • Individual Foreign Tax Credit (Form 1116)

Practice Area: Western Compliance Practice Area

Lead Executive: Paul Curtis

Individuals file Form 1116 to claim a credit that reduces their U.S. income tax liability for the amount of foreign taxes paid on foreign source income. This campaign addresses taxpayer compliance with the computation of the foreign tax credit limitation on Form 1116. Due to the complexity of computing the Foreign Tax Credit and challenges associated with third-party reporting information, some taxpayers face the risk of claiming an incorrect Foreign Tax Credit amount. The IRS will address noncompliance through a variety of treatment streams including examinations.

These campaigns represent the second wave of LB&I's issue-based compliance work. More campaigns will continue to be identified, approved and launched in the coming months.

  • Swiss Bank Program Campaign

Practice Area: Withholding & International Individual Compliance

Lead Executive: John Cardone

In 2013, the U.S. Department of Justice announced the Swiss Bank Program as a path for Swiss financial institutions to resolve potential criminal liabilities. Banks that are participating in this program provide information on the U.S. persons with beneficial ownership of foreign financial accounts. This campaign will address noncompliance, involving taxpayers who are or may be beneficial owners of these accounts, through a variety of treatment streams including, but not limited to, examinations.

November 6, 2017 in Tax Compliance | Permalink | Comments (0)

Another Panama Papers Leak - The Paradise Papers. 50 Years of Law Firm Documents of Appleby and of AsiaCiti Trust

The Paradise Papers documents include nearly 7 million loan agreements, financial statements, emails, trust deeds and other paperwork over nearly 50 Journalists logoyears from inside Appleby, a prestigious offshore law firm with offices in Bermuda and beyond.

The leaked documents include files from the smaller, family-owned trust company, Asiaciti, and from company registries in 19 secrecy jurisdictions.

Political leaders, wealthy individuals, and businesses' legal documents, emails, loan agreements, communications, financial statements, and tax strategies - are now all exposed.  Search the database to find out who did what and when.

Or read  > the Paradise Papers investigations < by professional journalists as these unfold.

November 6, 2017 in AML, Tax Compliance | Permalink | Comments (0)

Wednesday, November 1, 2017

IRS' Information Reporting Program Advisory Committee Issues Annual Report Recommending FATCA delays

The Information Reporting Program Advisory Committee (IRPAC) today issued its annual report for 2017, including numerous recommendations to the Internal Revenue Service on new and continuing issues in tax administration.  The report includes a discussion on how to improve some processes, such as for penalties, abatement requests and levies as well as business master file entity addresses. The report also recommended enhancements to Form W-9 and the truncation of Social Security numbers on Form W2, IRC § 6050S and Form 1098-T reporting.  

During 2017, the committee continued its dialogue with IRS officials regarding reporting requirements under the Foreign Account Tax Compliance Act and the Affordable Care Act and made extensive recommendations regarding both programs.

Recommendation G.11 – FATCA Gross Proceeds Withholding

IRPAC requests a delay in the implementation of the Treas. Reg. §1.1473-1(a)(1)(ii) requirement to deduct and withhold tax on gross proceeds for two years following the issuance of guidance on FATCA gross proceeds withholding.

Treas. Reg. §1.1473-1(a)(1)(ii) provides that a withholdable payment includes “for any sales or other dispositions occurring after December 31, 2018, any gross proceeds from the sale or other disposition of any property of a type that can produce interest or dividends that are U.S. source FDAP income.” Industry standard generally holds that withholding systems require approximately two years to design, build, test, and implement. Given it is less than two years until this December 31, 2018 date, IRPAC requests the IRS delay the implementation of FATCA gross proceeds withholding for a minimum of two years following the issuance of applicable guidance.

Recommendation G.12 – FATCA Foreign Passthru Payment Withholding

IRPAC requests a delay in the Treas. Reg. §1.1471-4(b)(4) requirement to deduct and withhold tax on foreign passthru payments for a minimum of  two years following the issuance of guidance defining the term foreign passthru payment.

Treas. Reg. §1.1471-4(b)(4) provides that “A participating FFI is not required to deduct and withhold tax on a foreign pass-thru payment made by such participating FFI to an account held by a recalcitrant account holder or to a nonparticipating FFI before the later of January 1, 2019, or the date of publication in the Federal Register of final regulations defining the term foreign pass-thru payment.” Industry standard generally holds that withholding systems require approximately two years to design, build, test, and implement. Given it is less than two years until this January 1, 2019 date, IRPAC requests the IRS delay the implementation of foreign pass-thru payment withholding for a minimum of two years following the issuance of guidance further defining the term foreign pass-thru payment. 

IRPAC is a federal advisory committee that provides an organized public forum for discussion of information reporting issues. It is comprised of a diverse cross-section of individuals drawn from the tax professional community, financial institutions, small and large businesses, universities and colleges and securities and payroll firms.

The full 2017 IRPAC Public Report is available on IRS.gov.

November 1, 2017 in Tax Compliance | Permalink | Comments (0)

Monday, October 30, 2017

William Byrnes appointed revision author of Texas Estate Planning treatise

The 24th annual release of Texas Estate Planning will be published November 1, 2017, by Lexis. Professor William Byrnes of Texas A&M University School of Law and author of nine Lexis legal treatises has been appointed the principal revision author of Texas Estate Planning. He has assembled a team of preeminent subject matter experts as chapter contributors, including: Tena Fox (Leach & Fox), Terry Leach (Leach & Fox), Carlos Rocha (Texas A&M Law), Benjamin Terner (The Einstein Group), Kim Donovan Uskovich (Kelly Hart), and James Weller (Greenway Capital Advisors). He has added two new chapters to this supplement: chapter 5, Alternative Risk Transfer, and chapter 6, Asset Protection Planning.

Highlights of this 2018 major treatise revision by the new author Professor William Byrnes of Texas A&M University School of Law include:

  • Alternative Risk Transfer and Estate Planning. New chapter 5 is intended to educate the estate tax practitioner on various uses of alternative risk transfer as an estate planning solution for high net worth clients.
  • Asset Protection. New chapter 6 is intended to assist the estate tax practitioner with advising clients on issues of wealth preservation and risk.
  • Uniform Partition of Heirs Property Act. New § 1.05[1][b][2] addresses the 2017 legislative addition to Texas Property Code Chapter 23A.
  • Digital Assets. New § 1.08 covers S.B. 1193, that provides fiduciaries the legal authority to manage digital assets and electronic communications in the same manner that they manage tangible assets and accounts. S.B. 1193 specifies when a fiduciary may access the content of digital assets and electronic communications, and when only a catalog of the property is permitted to be accessed. It also provides custodians of digital assets and electronic communications the legal authority they need to interact with the fiduciaries of their users while honoring the user’s privacy expectations for his or her personal communications.
  • Trust Decanting. Half of the states, including Texas since 2013, allow a process called “decanting” that can provide a method for clients to change the terms of their irrevocable trusts. See new §1.04[3][d].
  • Individual Retirement Accounts. New § 1.05[4] analyzes rollovers, community property issues, and the U.S. Supreme Court decision addressing loss of creditor protection.
  • Social Security. New § 1.05[5] has been added.
  • Portability. Estates that have failed to make timely portability elections may still be able to obtain the election if the estate can show that there was good cause for the failure. See the analysis at §1.03[3][a].
  • QTIP. Revenue Procedure 2016-49 essentially provides that a QTIP election will not be voided merely because it was unnecessary to reduce estate tax liability to zero, addressing the uncertainty regarding QTIP elections in the wake of Rev. Proc. 2001-38. See §41.01[8].
  • Reformation. The 2017 legislative session amended the Texas Property Code to include the possibility for reformation of a trust. See new §32.03[e].
  • Forfeiture. The 2017 legislative session amended the Texas Property Code to include that the Texas Property Code’s forfeiture provision will not be construed to prevent a beneficiary from seeking to compel a fiduciary to perform the fiduciary’s duties, seeking redress against a fiduciary for a breach of the fiduciary’s duties, or seeking a judicial construction of a will or trust. See §32.03[f].
  • Impact of Divorce. The 2017 legislative session amended the Texas Estate Code to clarify the impact of divorce in certain testamentary and nontestamentary circumstances. See §42.04[4].
  • Valuation. The IRS published I.R.B. 2016-36 proposed regulations to prevent the undervaluation based on the restriction on liquidation of an interest in corporations and partnerships for estate, gift, and generation-skipping transfer taxes. However, Executive Order 13789 instructed Treasury to reduce regulatory burdens by identifying regulations issued after 2015 to be rescinded or modified. I.R.B. has been identified. See §61.01[4].
  • Conditional Devises. New § 12.01[6] explains what is a conditional devise.



October 30, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, October 27, 2017

Online Courses Help Charities Understand Tax Issues

Charitable organizations have 24/7 access to online courses on Stay Exempt, an IRS website. The IRS created this site to help charities better understand tax issues that affect tax exempt organizations. It offers courses on a wide range of topics that can help these organizations obtain and maintain their tax-exempt status.

The online courses average less than 30 minutes. There is information to help guide an organization through the application process. They can also find courses that cover how to fully meet annual filing requirements. Aside from 501(c)(3)s, there are also courses geared to other 501 organizations, including veterans organizations, social clubs and fraternal organizations.

Some of the courses available include:

Getting and keeping tax-exempt status is important for the success of a charitable organization. Online courses on this site give directors, board members and volunteers access to tools and knowledge that will help them keep their organization’s exempt status.

October 27, 2017 in Tax Compliance | Permalink | Comments (0)

Monday, October 23, 2017

IRS 2017-2018 Priority Guidance Plan Includes Eliminating 18 Regulations?

The 2017-2018 Priority Guidance Plan contains guidance projects that we hope to complete during the twelve-month period from July 1, 2017, through June 30, 2018 (the plan year). Irs_logoPart 1 of the plan focuses on the eight regulations from 2016 that were identified pursuant to Executive Order 13789 and our intended actions with respect to those regulations. Part 2 of the plan describes certain projects that we have identified as burden reducing and that we believe can be completed in the 8 ½ months remaining in the plan year. As in the past, we intend to update the plan on a quarterly basis, and additional burden reduction projects may be added. Part 3 of the plan describes the various projects that comprise our implementation of the new statutory partnership audit regime, which has been a topic of significant concern and focus as the statutory rules go into effect on January 1, 2018. Part 4 of the plan, in line with past years’ plans and our long-standing commitment to transparency in the process, describes specific projects by subject area that will be the focus of the balance of our efforts this plan year.

Finally, most of these projects do not involve the issuance of new regulations. Rather, they will provide helpful guidance to taxpayers on a variety of tax issues important to individuals
and businesses in the form of: (1) revocations of final, temporary, or proposed regulations; (2) notices, revenue rulings, and revenue procedures; and (3) simplifying and burden reducing amendments to existing regulations.   Download Treasury Business Plan 2018 regs to be reduced

October 23, 2017 in Tax Compliance | Permalink | Comments (0)

Saturday, October 21, 2017

Congressional Chief of Staff Charged With Filing False Security Clearance Form, Imprisoned for Failure to File Taxes

Congressman Bennie Thompson's Chief of Staff Allegedly Did Not Disclose His Failure to File or Pay Taxes Download Avant Indictment

A congressional staffer was charged with filing a false security clearance form, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division, U.S. Attorney Jessie K. Liu for the District of Columbia and Assistant Director in Charge Andrew Vale of the FBI’s Washington Field Office.  He was previously sentenced to prison for willfully failing to file an individual income tax return.

According to the indictment, Issac Lanier Avant, a resident of Arlington, Virginia, was a staff member employed by the House of Representatives since approximately 2000.  Since 2002, Avant has been the Chief of Staff for a member of Congress.  In approximately December 2006, he began an additional position for the House Committee on Homeland Security, including Deputy Staff Director and Staff Director.  The indictment charges that from 2008 through 2012, Avant earned wages of approximately $170,000 and failed to file an individual income tax return with the Internal Revenue Service (IRS) during those years.  Avant allegedly had no federal income withheld during those years because in May 2005, he caused a form to be filed with his employer that falsely claimed he was exempt from federal income taxes.  According to the indictment, Avant did not have any federal tax withheld from his paycheck until the IRS mandated that his employer begin withholding in January 2013. 

In 2008 and again in 2013, for his position with the Committee on Homeland Security, Avant allegedly completed a Standard Form 86, “Questionnaire for National Security Positions” (SF-86), in order to receive a Top Secret security clearance.  The indictment charges that on Sept. 18, 2013, Avant willfully made a false statement by responding “no” to the following question on a SF-86: “In the past seven (7) years have you failed to file or pay federal, state, or other taxes when required by law or ordinance?”  

Despite earning more than $165,000, Avant failed to timely file his 2009 through 2013 individual income tax returns, causing a tax loss of $153,522. Avant had no federal income withheld during those years because in May 2005, he caused a form to be filed with his employer that falsely claimed he was exempt from federal income taxes. Avant did not have any federal tax withheld from his paycheck until the Internal Revenue Service (IRS) mandated that his employer begin withholding in January 2013. Avant did not file tax returns until after he was interviewed by federal agents.

The court imposed a prison term of approximately 4 months, consisting of 30 days incarceration, followed by incarceration every weekend for 12 months. Avant was also ordered to serve a one-year term of supervised release and to pay restitution in the amount of $149,962 to the IRS.

If convicted, Avant faces a statutory maximum prison term of five years, as well as a term of supervised release and monetary penalties. 

October 21, 2017 in Tax Compliance | Permalink | Comments (0)

Saturday, October 14, 2017

​2016 IRS Statistics of Income Program Documentation: Data Items by Forms and Schedules

This document is now available on SOI’s Tax Stats Web page and contains the Federal tax forms, schedules, and information documents selected for SOI's Tax Year 2016 studies. It is organized in the following two parts:

  • Individual and Tax Exempt studies include data related to the Form 1040 Individual Income Tax Return series, as well as data on sales of capital assets and an extensive program that connects income tax returns with information documents filed by third parties. The studies also include data collected for estate and gift taxes, tax-exempt organizations, and tax-exempt bonds.
  • Corporation, Partnership, and International studies focus on data collected from the Form 1120 series, SOI’s partnership program, as well as information collected from international filers.

SOI works in collaboration with data users both inside and outside of the Federal Government to develop the information collected for each SOI study. SOI bases most of its programs on stratified samples of returns for which data are collected prior to IRS audits; therefore, the data represent information as originally reported by taxpayers. Each tax form included in the SOI program is represented in this volume. The specific data items captured for each study are indicated on facsimiles of the forms and schedules. Data from certain forms and schedules are collected periodically, rather than annually. For this reason, the contents of this document will vary somewhat from year to year.

October 14, 2017 in Tax Compliance | Permalink | Comments (0)

Friday, October 13, 2017

Shining Light on the Shadow Economy: Opportunities and threats

This report looks at the impact on the shadow economy of changes in ways of working and business models, the growth of the digital economy and the emergence of new technologies. While these are causing some new shadow economy activities to emerge and some existing ones to expand in scale or scope, they are also providing tax administrations with new opportunities and tools to enhance compliance. The report sets out a number of examples of effective actions being taken by tax administrations utilising technology, behavioural insights and new sources of data.  It also recommends a number of areas for further targeted work to help improve tax administrations’ ability to tackle shadow economy activity, including for collaborative work on the sharing and gig economy.  Download Shining-light-on-the-shadow-economy-opportunities-and-threats

October 13, 2017 in Tax Compliance | Permalink | Comments (0)

Wednesday, October 11, 2017

Technology Tools to Tackle Tax Evasion and Tax Fraud

This report provides an overview of some of the technology tools that tax authorities have implemented to address tax evasion and tax fraud, focusing on electronic sales suppression and false invoicing. The report also includes a more technical catalog of these technology solutions, with a view to encouraging other tax authorities that are facing the same types of risks to draw on that experience. The report also discusses complementary work that tax authorities are undertaking to address the cash economy and sharing economy, which, although not types of tax evasion and fraud themselves, can facilitate it.   Download Technology-tools-to-tackle-tax-evasion-and-tax-fraud

October 11, 2017 in Tax Compliance | Permalink | Comments (0)

Thursday, October 5, 2017

FATCA Regulations To be Reviewed By Treasury for Potential Revocation? Along with 200 Other Regulations...

This Second Report recommends actions to eliminate, and in other cases mitigate, consistent with law, the burdens imposed on taxpayers by eight regulations that the Department of the Treasury (Treasury) has identified for review under Executive Order 13789.

Treasury is committed to reducing complexity and lessening the burden of tax regulations. In response to Executive Order 13789, Treasury’s Office of Tax Policy completed a  comprehensive review of all tax regulations issued in 2016 and January 2017. The June 22 Report identified eight proposed, temporary, or final regulations for withdrawal, revocation, or modification. Treasury continues to analyze all recently issued significant regulations and is considering possible reforms of several recent regulations not identified in the June 22 Report.  These include regulations under Section 871(m), relating to payments treated as U.S. source dividends, and the Foreign Account Tax Compliance Act.

Included in the review are longstanding temporary or proposed regulations that have not expired or been finalized. As part of the process coordinated by the Treasury Regulatory Reform Task Force, the IRS Office of Chief Counsel has already identified over 200 regulations for potential revocation, most of which have been outstanding for many years.

Treasury and the IRS expect to begin the rulemaking process for revoking these regulations in the fourth quarter of 2017. Treasury and the IRS are also seeking to streamline rules where possible. Later reports and guidance will provide details on the regulations identified for possible action, the reasons that they may be revoked, and the manner in which revocation would occur.

Actions Taken on Current Regs of June Report?

Final Regulations under Section 7602 on the Participation of a Person Described in Section 6103(n) in a Summons Interview (T.D. 9778; 81 F.R. 45409)

These final regulations provide that the IRS may use private contractors to assist the IRS in auditing taxpayers. Under the regulations, the IRS may contract with persons who are not government employees, and those private contractors may “participate fully” in the IRS’s interview of taxpayers or other witnesses summoned to provide testimony during an examination. In particular, the regulations allow private contractors to receive and review records produced in response to a summons, be present during interviews of witnesses, and question witnesses under oath, under the guidance of an IRS officer or employee. These regulations were issued as temporary regulations in 2014 and were finalized in 2016. Although only two comments were submitted during the public comment period, these regulations have since attracted public attention and criticism. In particular, the IRS’s ability to hire outside attorneys as contractors and have them question witnesses during a summons interview has raised concerns. After the IRS hired an outside law firm to assist with the audit of a corporate taxpayer, a federal court found that the “idea that the IRS can ‘farm out’ legal assistance to a private law firm is by no means established by prior practice” and noted that it “may lead to further scrutiny by Congress.”4 While the court determined, based on the statute, that the IRS had the legal authority to enlist the outside attorneys, the court was “troubled by [the law firm’s] level of involvement in this audit.”5 The Senate Finance Committee subsequently approved legislation that would prohibit the IRS from using any  private contractors for any purpose in summons proceedings. This legislation has not been enacted into law.

After reviewing and considering the foregoing concerns and the public comments received, Treasury and the IRS are looking into proposing a prospectively effective amendment to
these regulations in order to narrow their scope by prohibiting the IRS from enlisting outside attorneys to participate in an examination, including a summons interview. Under the amendment currently contemplated by Treasury and the IRS, outside attorneys would not be permitted to question witnesses on behalf of the IRS, nor would they be permitted to play a behind-the-scenes role, such as by reviewing summoned records or consulting on IRS legal strategy.

When the IRS enlists outside attorneys to perform the investigative functions ordinarily IRS investigators wield significant power to question witnesses under oath, to receive and
review books and records, and to make discretionary strategic judgments during an audit— with potentially serious consequences for the taxpayer. The current regulation requires the
IRS to retain authority over important decisions, but the risk of a private attorney taking practical control may simply be too great. These powers should be exercised solely by government employees committed to serve the public interest, not by outside attorneys.

These concerns outweigh any countervailing need for the IRS to contract with outside attorneys. Treasury remains confident that the core functions of questioning witnesses and conducting investigations are well within the expertise and ability of the IRS’s dedicated attorneys and examination agents. Although Treasury and the IRS are currently considering proposing an amendment to the regulations so that outside lawyers would no longer be allowed to participate in an examination, Treasury and the IRS currently intend that the regulations would continue to allow outside subject-matter experts to participate in summons proceedings. In certain highly complex examinations, effective tax administration may require the specialized knowledge of an economist, an engineer, a foreign attorney who is a specialist in foreign law, or other subject-matter experts. In some cases, there is a compelling need to look outside the IRS for expertise that the IRS’s own employees lack. Because experts have a circumscribed role in providing subject-matter knowledge, outside experts do not pose the same risks as outside attorneys. Outside experts should thus continue to be permitted to assist IRS by reviewing summoned materials and, if necessary, by posing questions to witnesses under the guidance and in the presence of IRS employees. Such a role would be limited to the small subset of cases in which the IRS requires the assistance of a subject-matter expert to ensure effective tax administration.

Regulations under Section 707 and Section 752 on Treatment of Partnership Liabilities (T.D. 9788; 81 F.R. 69282)

These partnership tax regulations include: (i) proposed and temporary regulations governing how liabilities are allocated for purposes of disguised sale treatment; and (ii) proposed and temporary regulations for determining whether so-called bottom-dollar” guarantees create the economic risk of loss necessary to be taken into account as a recourse liability. Treasury and the IRS, therefore, are considering whether the proposed and temporary regulations relating to disguised sales should be revoked and the prior regulations reinstated. By contrast, Treasury and the IRS currently believe that the second set of regulations relating to bottom-dollar guarantees should be retained.

Final and Temporary Regulations under Section 385 on the Treatment of Certain Interests in Corporations as Stock or Indebtedness (T.D. 9790; 81 F.R. 72858)

These final and temporary regulations address the classification of related-party debt as debt or equity for U.S. federal income tax purposes. Treasury received a very large number of comments on the Section 385 regulations. Many supported the regulations, while others were critical. Shortly after issuing the June 22 Report, Treasury and the IRS announced in Notice 2017-36 that application of the documentation rules would be delayed until 2019.  After further study of the documentation regulations, Treasury and the IRS are considering a proposal to revoke the documentation regulations as issued.

Distribution regulations retained pending enactment of tax reform. The distribution regulations address inversions and takeovers of U.S. corporations by limiting the ability of corporations to generate additional interest deductions without new investment in the United States.

Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations (T.D. 9803; 81 F.R. 91012)

After considering the comments and studying further the legal and policy issues, Treasury and the IRS have concluded that an exception to the current regulations may be justified by both the structure of the statute and its legislative history. Thus, to address taxpayers’ concerns about the breadth of the regulations, the Office of Tax Policy and IRS are actively working to develop a proposal that would expand the scope of the active trade or business exception described above to include relief for outbound transfers of foreign goodwill and
going-concern value attributable to a foreign branch under circumstances with limited potential for abuse and administrative difficulties, including those involving valuation. Treasury and the IRS currently expect to propose regulations providing such an exception in the near term.

Please download my new analysis of the impact of FATCA and CRS: https://ssrn.com/abstract=3045459

October 5, 2017 in Tax Compliance | Permalink | Comments (0)

Tuesday, September 12, 2017

Disclosing Wealth Panel and Materials - Cambridge Economic Crimes Symposium

At the 35th Cambridge Economic Crimes Symposium attended by over 1,750 delegates from over 100 countries, on Friday September 8, 2017, Professor William Byrnes (Texas A&M) Image1analyzed the issues and challenges of "Disclosing Wealth".  His slides and his paper are available for download:

Slides: Download Byrnes Cambridge 2017 Disclosing Wealth 

Essay: https://ssrn.com/abstract=2916444

Professor Byrnes addressed the findings of Robert Barrington's Transparency International in the context of how some low score governments, a majority of the index, are leveraging financial and tax information to investigate (and silence) political opposition and promote criminal acts against citizens.  Professor Byrnes provided a path way forward for what the high score governments can do to assess the low score countries and address the misuse of information.  

"I was overwhelmed by the positive response from both industry and government attendees," said William Byrnes. "I am already in contact with several attendees about potential mitigation of the challenges that were discussed and presented in my essay".

Other plenary panelists by example included -

• Mr Robert Barrington, Executive Director, Transparency International UK
• Mr Howard Sharp QC, former HM Solicitor General of the States of Jersey
• Mr Barnaby Pace, Senior Campaigner, Governments and Corruption, Global Witness, UK
• Ms Polly Greenberg, Managing Director, Financial Crime and Regulatory Consulting, Duff & Phelps, LLC and former Chief, Major Crimes Bureau, New York County District Attorney’s Office, USA
• Professor David Chaikin, Associate Professor of Law, University of Sydney Business School, Barrister, and formerly of the Australian Federal Attorney-General’s Department and the Commonwealth Secretariat
• Professor Rose-Marie Antoine, Dean, Faculty of Law, University of the West Indies, St Augustine, Trinidad
and Tobago
• Ms Tessa Lorimer, Special Counsel, Withers LLP and formerly of the Crown Prosecution Service for England and Wales and the HM Revenue and Customs Prosecution Office, UK

William Byrnes has established a Curriculum in Risk Management

September 12, 2017 in Tax Compliance | Permalink | Comments (0)

Summer 2017 Statistics of Income Bulletin

The Internal Revenue Service today announced that the Summer 2017 Statistics of Income Bulletin is available on IRS.gov. The Irs_logo
Statistics of Income (SOI) Division produces the online Bulletin quarterly, providing the most recent data available from various tax and information returns filed by U.S. taxpayers. This issue includes articles on the following topics:

  • High-Income Tax Returns, Tax Year 2014– For tax year 2014, there were almost 6.3 million individual income tax returns with incomes of $200,000 or more, accounting for 4.2 percent of all returns for the year, up from 5.6 million returns for tax year 2013. 
  • Corporate Foreign Tax Credit Study, Tax Year 2013– For tax year 2013, some 6,542 corporations filing corporation income tax returns reported more than $118 billion in foreign tax credits. Firms in manufacturing industries accounted for 58 percent of all foreign tax credits. European countries accounted for 39.3 percent of taxable foreign-source income and 46 percent of current year foreign taxes.
  • Individual Noncash Contributions, Tax Year 2014– The number of individuals filing Form 8283 to claim a noncash charitable contribution rose to 8 million for tax year 2014, an increase of 3.9 percent over tax year 2013. Total donations reported increased 30.1 percent for 2014 to $60.4 billion. Of this total, more than half went to foundations ($18.9 billion) and large charitable organizations ($12.2 billion).

SOI Bulletin articles are available for download at IRS.gov/statistics. 

September 12, 2017 in Tax Compliance | Permalink | Comments (0)

Monday, September 11, 2017

IRS Tax Stats 2017-16

Inside This Issue

  1. State Data, Tax Year 2015
  2. Metropolitan and Micropolitan Data, Tax Year 2015
  3. County Data, Tax Year 2015
  4. ZIP Code Data, Tax Year 2015
  5. Mid-July Filing Season Statistics by Adjusted Gross Income

  1.  State Data, Tax Year 2015


State data tables for Tax Year 2015 are now available on SOI’s Tax Stats Web page. These tables present selected income and tax return items from individual income tax returns (Form 1040) broken out by all 50 states, as well as the District of Columbia and other areas. Notable changes to the data this year include the addition of volunteered income tax assistance (VITA) returns with Earned Income Credit as well as three number-of-return variables: refund anticipation loan returns; refund anticipation check returns; and elderly returns.

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  2.  Metropolitan and Micropolitan Data, Tax Year 2015


Metropolitan and Micropolitan data tables for Tax Year 2015 are now available on SOI's Tax Stats Web site. These tables present selected income and tax return items based on SOI's county data. The information provides for more indepth analysis as it contains urban core populations of 50,000 or more for metro areas and at least 10,000 (but less than 50,000) for micro areas. Notable changes to the data this year include the addition of volunteered income tax assistance (VITA) returns with Earned Income Credit as well as three number-of-return variables: refund anticipation loan returns; refund anticipation check returns; and elderly returns.

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  3.  County Data, Tax Year 2015


Tables by county from selected income and tax return items for Tax Year 2015 are now available on SOI’s Tax Stats Web page. These tables present data from individual income tax returns (Form 1040) broken out by county-level geography for approximately 3,000 counties across the United States. Notable changes to the data this year include the addition of volunteered income tax assistance (VITA) returns with Earned Income Credit as well as three number-of-return variables: refund anticipation loan returns; refund anticipation check returns; and elderly returns.

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  4.  ZIP Code Data, Tax Year 2015


ZIP code data tables for Tax Year 2015 are now available on SOI’s Tax Stats Web page. These tables present selected income and tax return items from individual income tax returns (Form 1040) by ZIP-code level geography for approximately 43,000 ZIP codes across the United States. Notable changes to the data this year include the addition of volunteered income tax assistance (VITA) returns with Earned Income Credit as well as three number-of-return variables: refund anticipation loan returns; refund anticipation check returns; and elderly returns.

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  5.  Mid-July Filing Season Statistics by Adjusted Gross Income


Tables presenting information by AGI from the population of all Forms 1040 processed by the IRS on or before week 30 of the calendar year are now available on SOI’s Tax Stats Web page. These returns primarily reflect income earned in the year preceding the filing year, but exclude taxpayers who requested a 6-month extension by filing Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return.

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September 11, 2017 in Tax Compliance | Permalink | Comments (0)

Wednesday, August 23, 2017

IFA 2017 Global Conference : 71st Congress of the International Fiscal Association in Rio, Brazil

It is end of summer which means the 71st annual IFA is upon us.  2,500 international tax academics, general counsel of Fortune 500, government, IGOs, and big firm partners gather for over a week in this scientific forum to investigate the tax challenges that cause friction for international trade and investment, as well as the challenges for governments to legislate and collect tax to fulfill expenditure requirements.

IFA 2017 Global Conference : 71st Congress of the International Fiscal Association will be held from Sunday, 27 August 2017 to Friday, 1 September IFA 2017 2017 (most of us arrive to the conference this Thursday to begin discussions so I look forward to meeting you this weekend at the lobby or in the convention center!)

The Future of Transfer Pricing

Although optimists agree that the future world will be unique, most of them tend to disagree how to achieve it. In this sense, regarding transfer pricing issues, many proposals of reform are being elaborated or even implemented to solve the current problems, not only limited to BEPS actions. In order to discuss the future of transfer pricing, the panel will present and debate (i) the foundations and problems of the current regime, (ii) the recent developments that such paradigms have brought in terms of transfer pricing methods as well as (iii) the main practical problems under debate and (iv) the divergent proposals within different jurisdictions to solve them.

Assessing BEPS: Origins, Standards and Responses

The G20/OECD Base Erosion and Profit Shifting (“BEPS”) initiative, aiming at “fixing” the international tax system on the basis of coherence, substance and transparency, is currently implemented around the globe. Relying on latest developments, Subject 1 will provide participants with an instigating comparative analysis of the implementation of BEPS in various regions. The discussion will begin in the internal market and will look at the impact of BEPS for European Member States and their relations with third countries. The relation and consistency of BEPS with European law and developments such as the (re)evolution of state aid rules shall also be considered from a policy perspective. Next, the panel will contrast the national responses to BEPS in different jurisdictions, looking in particular at the US, Latin American countries, India and the Asian region. In the end, the panel will assess whether the BEPS project has kept its promises and will formulate recommendations for future multilateral initiatives.

International Fiscal Association

The International Fiscal Association (IFA) was established in 1938 with its headquarters in the Netherlands. It is the only non-governmental and non-sectoral international organisation dealing with fiscal matters.  Its objects are the study and advancement of international and comparative law in regard to public finance, specifically international and comparative fiscal law and the financial and economic aspects of taxation.  IFA seeks to achieve these objects through its Annual Congresses and the scientific publications relating thereto as well as through scientific research. Although the operations of the IFA are essentially scientific in character, the subjects selected take account of current fiscal developments and changes in local legislation.

Membership of IFA now stands at more than 12,500 from 116 countries. In 70 countries IFA members have established IFA Branches. Direct membership is possible in countries where there is as yet no IFA Branch. Please visit the IFA website (www.ifa.nl) on which a survey is posted which gives an impression of the geographical spread of the members affiliated to the IFA Branches and a survey of the direct members.

 

August 23, 2017 in Tax Compliance | Permalink | Comments (0)